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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-05 · 150 added, 199 removed, 487 unchanged (42% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of AGNC Investment Corp.'s consolidated financial statements with a narrative from the perspective of management and should be read in conjunction with the consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q for quarterly period ended September 30, 2021.

Our MD&A is presented in six sections:

Our MD&A is presented in the following sections:

• Executive Overview

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Government agency.

We are internally managed with the principal objective of providing our stockholders with attractive risk-adjusted returns through a combination of monthly dividends and tangible net book value accretion.

We are internally managed with the principal objective of providing our stockholders with favorable long-term returns on a risk-adjusted basis through attractive monthly dividends.

We generate income from the interest earned on our investments, net of associated borrowing and hedging costs, and net realized gains and losses on our investment and hedging activities.

We fund our investments primarily through collateralized borrowings structured as repurchase agreements.

our investments primarily through collateralized borrowings structured as repurchase agreements.

We operate in a manner to qualify to be taxed as a REIT under the Internal Revenue Code.

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Trends and Recent Market Impacts

In the third quarter, several positive developments benefited the Agency RMBS market.

First, the Federal Reserve (the “Fed”) communicated a potential timeline for the reduction of its asset purchases that was largely in line with market expectations and, as result, did not precipitate material mortgage spread widening or interest rate volatility.

The interest rate and prepayment landscape also improved, with intermediate and longer-term rates increasing late in the quarter.

Primary mortgage rates also ended the quarter well above their intra-year low, which should lead to a more benign prepayment environment.

Collectively, these favorable developments contributed to our stable tangible net book value and 2.3% economic return for the quarter, which consisted of a $0.02 increase in our tangible net book value per common share and $0.36 of dividends per common share for the quarter.

Notably, despite significant interest rate volatility and elevated prepayment speeds in the first half of the year, AGNC’s year-to-date economic return totaled 4.7% through the third quarter.

In November, the Fed announced that it will begin tapering Agency RMBS purchases at the pace of $5 billion per month over an estimated eight-month period but may adjust the pace consistent with changes in its economic outlook.

Importantly, when tapering is complete, it is expected that the Fed will continue to purchase significant amounts of Agency RMBS as it reinvests paydowns on its existing portfolio.

As a result, we do not expect significant Agency RMBS spread widening during the Fed taper cycle, though some spread volatility could occur.

Despite the Fed providing clarity regarding its tapering plan, broader macroeconomic uncertainty remains.

Inflation measures remain elevated, and supply chain shortages and disruptions have become more widespread.

Further, the employment outlook appears poised for strong growth and could put upward pressure on wages.

Collectively, uncertainty surrounding these inflationary pressures reduces the predictability as to when and how significantly the Fed will increase short-term interest rates, creating the potential for increased interest rate volatility.

As a result, we favor operating with a more conservative risk profile in the current environment.

As of September 30, 2021, our “at-risk” leverage ratio declined to 7.5x tangible equity, from 7.9x as of June 30, 2021.

Our interest rate hedge portfolio totaled $72.9 billion, or 98% of our mortgage borrowings, compared to $74 billion and 97%, respectively, as of June 30, 2021.

Our duration gap, which is a measure of the difference between the interest rate sensitivity of our assets and liabilities, inclusive of our interest rate hedges, was largely unchanged during the third quarter at 0.4 years as of September 30, 2021, compared to 0.3 years as of June 30, 2021.

Our investment portfolio totaled $84.1 billion as of September 30, 2021, a decline of $3.4 billion from $87.5 billion as of June 30, 2021, and consisted of $53.7 billion Agency RMBS, $28.3 billion TBA securities and $2.1 billion CRT and non-Agency securities, including forward setting non-Agency securities.

As of September 30, 2021, our portfolio remained positioned for a range of interest rate scenarios, with our Agency portfolio comprised roughly of 60% lower coupon generic securities and 40% higher coupon specified pools.

Our forecasted life CPRs decreased during the quarter to 10.7% as of September 30, 2021, from 11.6% as of June 30, 2021, due to the combination of moderate changes in portfolio composition and

higher interest rates.

Our actual prepayment rate for the third quarter also trended lower to 22.5% from 25.7% for the prior quarter.

Net spread and dollar roll income, excluding “catch-up” premium amortization as a result of changes in projected CPRs for securities acquired in prior quarters, a non-GAAP measure, was $0.75 per diluted common share for the third quarter, and was largely unchanged from the first two quarters of the year as favorable short-term funding, attractive TBA dollar roll opportunities and stable hedge costs continued to offset our smaller asset base.

(Please refer to Results of Operations for further information regarding non-GAAP measures).

As of September 30, 2021, our unencumbered cash and Agency MBS increased to $5.2 billion, or 51% of our tangible equity, which excludes unencumbered credit assets and assets held at our captive broker-dealer subsidiary, compared to $4.7 billion and 47%, respectively, as of June 30, 2021.

Looking ahead, we believe our current positioning and strong liquidity position offers us flexibility to increase leverage to take advantage of favorable investment opportunities as they arise.

The investment environment was very challenging in the first quarter as the market faced elevated geopolitical risk, growing inflation concerns, and the expectation of significantly tighter monetary policy.

Against this backdrop, interest rates repriced materially higher, the yield curve flattened, and fixed income spreads to benchmark interest rates widened.

These conditions led to a “risk-off” sentiment that pressured equity markets and caused unprecedented price declines across fixed income markets as evidenced by the Bloomberg Aggregate Bond Index, the broadest fixed income market measure, posting its worst quarterly performance in more than 40 years.

Major monetary policy transitions are difficult for fixed income markets broadly and the Agency MBS market specifically, given its unique role in monetary policy and the overall economy.

The Federal Reserve (the “Fed”) indicated at its March meeting that the portfolio runoff plan will include an Agency RMBS cap of $35 billion per month and provided greater clarity at its May meeting that the runoff will begin on June 1, 2022 with an initial cap of $17.5 billion per month for the first three months before increasing to the previously announced $35 billion per month level.

This guidance was largely in line with investor expectations.

Concerns associated with the Fed’s balance sheet normalization drove Agency RMBS spreads significantly wider during the first quarter relative to interest rate swap and U.S.

Treasury hedges.

This mortgage spread widening was, in turn, the primary driver of AGNC’s 14.4% economic loss on tangible net asset value per common share for the quarter, which consisted of a 16.7% decline of our tangible net book value to $13.12 per common share as of March 31, 2022 and dividends declared during the quarter of $0.36 per common share.

As a result of the significant repricing of Agency RMBS over the past several quarters, we believe that risk-adjusted returns on many segments of the Agency RMBS market are now attractive on both an absolute and relative basis.

However, we expect markets to remain volatile over the near-term as a result of the uncertain and rapidly shifting economic backdrop.

Although Agency RMBS could experience additional valuation declines over the near-term, which may negatively impact our tangible net book value per share of common stock, we would likely view such declines as a favorable buying opportunity in light of the enhanced projected returns on new investments.

Our at-risk leverage remained below our historical operating levels during the first quarter as we continued to maintain a defensive position.

As of the end of the first quarter, our leverage was 7.5x tangible equity, slightly lower than 7.7x as of the end of the end of the fourth quarter.

Given the elevated interest rate volatility and ongoing uncertainty around quantitative tightening measures, we took additional actions to reduce our aggregate risk profile during the quarter by reducing our asset position, shifting our Agency RMBS portfolio toward higher coupon securities, and increasing our interest rate hedge position relative to our funding liabilities.

As of March 31, 2022, our interest rate hedges totaled 121% of the outstanding balance of our Agency repurchase agreements, net TBA position and other debt, compared to 101% as of December 31, 2021.

As of March 31, 2022, our duration gap, which is a measure of the difference between the interest rate sensitivity of our assets and liabilities, inclusive of our interest rate hedges, was 0.3 years, up slightly from 0.1 years as of December 31, 2021.

Our unencumbered cash and Agency RMBS position, which excludes both unencumbered credit assets and assets held at our captive broker-dealer subsidiary, was $3.5 billion as of March 31, 2022, compared to $4.9 billion as of December 31, 2021.

Consistent with higher interest rates, the average projected life CPR on our portfolio decreased to 7.9% as of March 31, 2022, from 10.9% as of the end of the prior quarter.

Actual CPRs on our portfolio also continued to trend lower, averaging 14.5% for the first quarter.

Our net interest spread for the quarter increased to 219 basis points, from 215 basis points for the fourth quarter, as the improvement in asset yields due to declining prepayment speeds, portfolio repositioning, and very strong TBA dollar roll performance more than offset a modest increase in our cost of funds.

Thus, despite a smaller asset base, our net spread and dollar roll income, excluding “catch-up” premium amortization due to changes in CPR projections, remained relatively stable at $0.72 per share of common stock (a non-GAAP measure), compared to $0.75 for the prior quarter.

While we anticipate that TBA dollar roll performance will moderate over time to levels more consistent with historical averages, our interest rate swap position should provide considerable protection for our cost of funds against the significant increase in short-term rates that is expected to occur over the remainder of the year.

Although the underperformance of Agency RMBS has negatively impacted our tangible net book value in the short-run, higher rates and wider spreads have significantly improved our investment outlook on both our existing portfolio and new Agency RMBS investments.

We believe we are well-positioned to take advantage of favorable investment opportunities as market conditions stabilize, which should improve the long-term earnings profile of our investment portfolio.

For information regarding non-GAAP financial measures, including reconciliations to the most comparable GAAP measure, and information regarding our average implied TBA dollar roll financing, please refer to Results of Operations included in this MD&A below.

For further discussion regarding the sensitivity of our tangible net book value to changes in interest rates and mortgage spreads, please refer to Item 3.

Quantitative and Qualitative Disclosures about Market Risk in this form 10-Q.

Market Information

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Interest Rate/Security Price 1

31, 2021 June 30, 2021 Sept.

30, 2021 Dec.

31, 2021 Mar.

31, 2021 June 30, 2021 Sept.

30, 2021 Sept.

June 30, 2021

31, 2022 Mar.

Target Federal Funds Rate:

Target Federal Funds Rate - Upper Band

0.25% 0.25% 0.25% 0.25% 0.25% — bps — bps

SOFR Rate 0.08% 0.07% 0.01% 0.05% 0.05% — bps -2 bps

0.25% 0.25% 0.25% 0.25% 0.50% +25 bps

SOFR Rate 0.01% 0.05% 0.05% 0.05% 0.29% +24 bps

SOFR Interest Rate Swap Rate:

0.03% 0.06% 0.12% 0.19% 0.24% +5 bps +18 bps

0.13% 0.24% 0.82% 0.75% 0.83% +8 bps +59 bps

0.47% 0.71% 1.52% 1.19% 1.26% +7 bps +55 bps

0.86% 1.15% 1.92% 1.50% 1.52% +2 bps +37 bps

0.12% 0.19% 0.24% 0.74% 2.28% +154 bps

0.82% 0.75% 0.83% 1.12% 2.25% +113 bps

1.52% 1.19% 1.26% 1.32% 2.13% +81 bps

1.92% 1.50% 1.52% 1.46% 1.97% +51 bps

Treasury Security Rate:

0.13% 0.12% 0.16% 0.25% 0.28% +3 bps +16 bps

0.28% 0.36% 0.94% 0.89% 0.97% +8 bps +61 bps

0.69% 0.92% 1.74% 1.47% 1.49% +2 bps +57 bps

1.46% 1.65% 2.41% 2.09% 2.05% -4 bps +40 bps

0.16% 0.25% 0.28% 0.73% 2.34% +161 bps

0.94% 0.89% 0.97% 1.26% 2.46% +120 bps

1.74% 1.47% 1.49% 1.51% 2.34% +83 bps

2.41% 2.09% 2.05% 1.90% 2.45% +55 bps

30-Year Fixed Rate Agency Price:

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Prices in the table above were obtained from Barclays.

Interest and LIBOR rates were obtained from Bloomberg.

Interest rates were obtained from Bloomberg.

The following table summarizes mortgage rates and credit spreads as of each date presented below:

Mortgage Rate/Credit Spread Sept.

Mortgage Rate/Credit Spread Mar.

31, 2021 June 30, 2021 Sept.

30, 2021 Dec.

31, 2021 Mar.

31, 2021 June 30, 2021 Sept.

30, 2021 Sept.

June 30, 2021

31, 2022 Mar.

Mortgage Rate:

30 Year Mortgage Rate 3.08% 2.87% 3.27% 3.13% 3.18% +5 bps +31 bps

30 Year Agency Current Coupon 1.40% 1.34% 2.04% 1.83% 1.97% +14 bps +63 bps

30 Year Primary to Secondary Spread 1.68% 1.53% 1.23% 1.30% 1.21% -9 bps -32 bps

30-Year Mortgage Rate 3.27% 3.13% 3.18% 3.27% 4.90% +163 bps

30-Year Agency Current Coupon 2.04% 1.83% 1.97% 2.07% 3.49% +142 bps

30-Year Primary to Secondary Spread 1.23% 1.30% 1.21% 1.20% 1.41% +21 bps

Credit Spread (in bps):

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FINANCIAL CONDITION

As of September 30, 2021 and December 31, 2020, our investment portfolio totaled $84.1 billion and $97.9 billion, respectively, consisting of:

As of March 31, 2022 and December 31, 2021, our investment portfolio totaled $68.6 billion and $82.0 billion, respectively, consisting of:

$49.1 billion and $54.4 billion investment securities, at fair value, respectively;

$19.5 billion and $27.1 billion net TBA securities, at fair value, respectively;

and $0.5 billion and zero forward settling non-Agency securities, at fair value, respectively.

The following table is a summary of our investment portfolio as of September 30, 2021 and December 31, 2020 (dollars in millions):

September 30, 2021 December 31, 2020

and as of December 31, 2021, $0.4 billion forward settling non-Agency securities, at fair value.

The following table is a summary of our investment portfolio as of March 31, 2022 and December 31, 2021 (dollars in millions):

March 31, 2022 December 31, 2021

Investment Portfolio (Includes TBAs) Amortized Cost Fair Value Average Coupon % Amortized Cost Fair Value Average Coupon %

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Adjustable rate Agency RMBS 40 41 2.32 % — % 45 47 2.23 % — %

Multifamily — — — % — % 17 19 3.31 % — %

CMO Agency RMBS:

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For further details of our TBA securities refer to Note 5 of our Consolidated Financial Statements in this Form 10-Q.

Includes $0.5 billion of forward settling non-Agency securities.

Includes $0.4 billion of forward settling non-Agency securities as of December 31, 2021.

TBA and forward settling securities are recorded as derivative instruments in our accompanying consolidated financial statements, and our TBA dollar roll transactions represent a form of off-balance sheet financing.

As of September 30, 2021 and December 31, 2020, our TBA position and forward settling securities had a net carrying value of $(171) million and $275 million, respectively, reported in derivative assets /(liabilities) on our accompanying consolidated balance sheets.

As of March 31, 2022 and December 31, 2021, our TBA position and forward settling securities had a net carrying value of $(609) million and $(44) million, respectively, reported in derivative assets/(liabilities) on our accompanying consolidated balance sheets.

The net carrying value represents the difference between the fair value of the underlying security in the TBA contract or forward purchase agreement and the price to be paid or received for the underlying security.

As of September 30, 2021 and December 31, 2020, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 2.48% and 2.33%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of September 30, 2021 and December 31, 2020 (dollars in millions):

September 30, 2021

As of March 31, 2022 and December 31, 2021, the weighted average yield on our investment securities (excluding TBA and forward settling securities) was 2.56% and 2.43%, respectively.

The following tables summarize certain characteristics of our fixed rate Agency RMBS portfolio, inclusive of TBA securities, as of March 31, 2022 and December 31, 2021 (dollars in millions):

March 31, 2022

Includes Net TBA Position Excludes Net TBA Position

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Specified pools include pools backed by lower balance loans with original loan balances of up to $200K, HARP pools (defined as pools that were issued between May 2009 and December 2018 and backed by 100% refinance loans with original LTVs ≥ 80%), and pools backed by loans 100% originated in New York and Puerto Rico.

As of September 30, 2021, lower balance specified pools had a weighted average original loan balance of $119,000 and $115,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 127% and 138% for 15-year and 30-year securities, respectively.

As of March 31, 2022, lower balance specified pools had a weighted average original loan balance of $122,000 and $122,000 for 15-year and 30-year securities, respectively, and HARP pools had a weighted average original LTV of 128% and 138% for 15-year and 30-year securities, respectively.

WAC represents the weighted average coupon of the underlying collateral.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of September 30, 2021.

Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of March 31, 2022.

December 31, 2021

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Portfolio yield incorporates a projected life CPR based on forward rate assumptions as of December 31, 2021.

For additional details regarding our CRT and non-Agency securities, including credit ratings, as of September 30, 2021 and December 31, 2020, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

For additional details regarding our CRT and non-Agency securities, including credit ratings, as of March 31, 2022 and December 31, 2021, please refer to Note 3 of our Consolidated Financial Statements in this Form 10-Q.

RESULTS OF OPERATIONS

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The following selected financial data is derived from our interim consolidated financial statements and the notes thereto.

The tables below present our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 and condensed consolidated statements of comprehensive income and key statistics for the three and nine months ended September 30, 2021 and 2020 (in millions, except per share amounts):

September 30,

The tables below present our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 and condensed consolidated statements of comprehensive income and key statistics for the three months ended March 31, 2022 and 2021 (in millions, except per share amounts):

Balance Sheet Data 2022

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Statement of Comprehensive Income Data (Unaudited)

2021 2020 2021 2020

Interest income $ 475 $ 557

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Other Data (Unaudited) * 2022 2021

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Average investment securities - at cost $ 53,535 $ 58,948

Average net TBA portfolio - at cost $ 30,312 $ 27,785 $ 30,132 $ 17,017

Average net TBA dollar roll position - at cost $ 23,605 $ 32,022

Average total assets - at fair value $ 67,213 $ 79,415

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Average tangible net book value "at risk" leverage 5

7.5:1 8.9:1 7.7:1 9.1:1

Tangible net book value "at risk" leverage (as of period end) 6

7.5:1 8.8:1 7.5:1 8.8:1

Economic return on tangible common equity - unannualized 7

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Expenses % of average total assets - annualized

0.12 % 0.12 %

Expenses % of average assets, including average net TBA position - annualized

0.09 % 0.09 %

Expenses % of average stockholders' equity - annualized

0.88 % 0.85 %

________________________________

* Except as noted below, average numbers for each period are weighted based on days on our books and records.

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Average stockholders' equity calculated as average month-ended stockholders' equity during the period.

Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund our investment securities, other debt, and TBA and forward settling securities (at cost) (together "mortgage borrowings") outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill for the period.

Average tangible net book value "at risk" leverage is calculated by dividing the sum of daily weighted average repurchase agreements used to fund our investment securities, other debt, and TBA and forward settling securities (at cost) (collectively "mortgage borrowings") outstanding for the period by the sum of average stockholders' equity adjusted to exclude goodwill for the period.

Leverage excludes U.S.

Treasury repurchase agreements.

Tangible net book value "at risk" leverage as of period end is calculated by dividing the sum of mortgage borrowings outstanding and receivable/payable for unsettled investment securities as of period end (at cost) by the sum of total stockholders' equity adjusted to exclude goodwill as of period end.

Tangible net book value "at risk" leverage as of period end is calculated by dividing the sum of mortgage borrowings outstanding and receivable/payable for unsettled investment securities as of period end by the sum of total stockholders' equity adjusted to exclude goodwill as of period end.

Leverage excludes U.S.

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Economic Interest Income and Asset Yields

The following table summarizes our economic interest income (a non-GAAP measure) for the three and nine months ended September 30, 2021 and 2020, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods of changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2021 2020 2021 2020

Amount Yield Amount Yield Amount Yield Amount Yield

The following table summarizes our economic interest income (a non-GAAP measure) for the three months ended March 31, 2022 and 2021, which includes the combination of interest income (a GAAP measure) on our holdings reported as investment securities on our consolidated balance sheets, adjusted to exclude estimated "catch-up" premium amortization adjustments for the cumulative effect from prior reporting periods due to changes in our CPR forecast, and implied interest income on our TBA securities (dollars in millions):

Three Months Ended March 31,

Amount Yield Amount Yield

Interest income:

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The combined asset yield is calculated on a weighted average basis based on our average investment and TBA balances outstanding during the period and their respective yields.

The principal elements impacting our economic interest income are the size of our average investment portfolio and the yield (actual and implied) on our securities.

The following table includes a summary of the estimated impact of each of these elements on our economic interest income for the three and nine months ended September 30, 2021 compared to the prior year period (in millions):

The principal elements impacting our economic interest income are the size of our average investment portfolio and the yield on our securities.

The following table includes a summary of the estimated impact of each of these elements on our economic interest income for the three months ended March 31, 2022 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements Impacting Economic Interest Income

Periods ended September 30, 2021 vs.

September 30, 2020

Due to Change in Average

Total Increase /

(Decrease) Portfolio

Three months ended:

Interest Income (GAAP measure) $ (71) $ (74) $ 3

Estimated "catch-up" premium amortization due to change in CPR forecast (48) — (48)

Interest income, excluding "catch-up" premium amortization (119) (74) (45)

TBA dollar roll income - implied interest income 28 10 18

Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ (91) $ (64) $ (27)

Three Months Ended March 31, 2022 vs.

March 31, 2021

Due to Change in Average

Nine months ended:

Total Increase /

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Economic interest income, excluding "catch-up" amortization (non-GAAP measure) $ (21) $ (81) $ 60

Our average investment portfolio, inclusive of TBAs (at cost), decreased 11% and 10% for the three and nine months ended September 30, 2021, respectively, compared to the prior year period, primarily due to lower operating leverage and a decline in our average stockholders' equity.

The decrease in the average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, of 14 basis points and 52 basis points for the three and nine months ended September 30, 2021, respectively, was largely due to changes in asset composition and lower prevailing yields on new asset purchases.

Our average investment portfolio, inclusive of TBAs (at cost), decreased 15% for the three months ended March 31, 2022, compared to the prior year period, primarily due to a decline in stockholders' equity.

The average yield on our investment portfolio, including TBA implied asset yields and excluding "catch-up" premium amortization, increased 26 basis points largely due to changes in asset composition and slower CPR projections.

Our primary measure of leverage is our tangible net book value "at risk" leverage ratio, which is measured as the sum of our repurchase agreements and other debt used to fund our investment securities and net TBA and forward settling securities position (at cost) (together referred to as "mortgage borrowings") and our net receivable/payable for unsettled investment securities, divided by our total stockholders' equity adjusted to exclude goodwill.

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Amount Ending

September 30, 2021 $ 45,847 $ 49,021 $ 45,723 $ 30,312 $ 28,912 7.5:1 7.5:1

June 30, 2021 $ 52,374 $ 60,186 $ 48,488 $ 28,082 $ 27,611 7.6:1 7.9:1

March 31, 2022 $ 46,570 $ 47,940 $ 44,150 $ 23,605 $ 20,152 7.8:1 7.5:1

December 31, 2021 $ 46,999 $ 48,524 $ 47,037 $ 29,014 $ 27,622 7.6:1 7.7:1

September 30, 2020 $ 61,008 $ 69,628 $ 54,558 $ 27,785 $ 29,460 8.9:1 8.8:1

June 30, 2020 $ 69,552 $ 72,399 $ 69,370 $ 15,662 $ 20,413 8.8:1 9.2:1

March 31, 2021 $ 54,602 $ 57,153 $ 55,221 $ 32,022 $ 25,355 8.0:1 7.7:1

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Economic Interest Expense and Aggregate Cost of Funds

The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for the three and nine months ended September 30, 2021 and 2020 (dollars in millions), which includes the combination of interest expense on Agency repurchase agreements and other debt (GAAP measure), implied financing cost (benefit) of our TBA securities and interest rate swap periodic cost:

Three Months Ended September 30,

Nine Months Ended September 30,

2021 2020 2021 2020

The following table summarizes our economic interest expense and aggregate cost of funds (non-GAAP measures) for the three months ended March 31, 2022 and 2021 (dollars in millions), which includes the combination of interest expense on Agency repurchase agreements and other debt (GAAP measure), implied financing cost (benefit) of our TBA securities and interest rate swap periodic cost:

Three Months Ended March 31,

Economic Interest Expense and Aggregate Cost of Funds 1

Amount Cost of Funds Amount Cost of Funds Amount Cost of Funds Amount Cost of Funds

Amount Cost of Funds Amount Cost of Funds

Repurchase agreement and other debt - interest expense (GAAP measure) $ 27 0.23 % $ 29 0.21 %

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(2) (0.01) % (9) (0.04) %

Interest rate swap periodic cost 2,5

Interest rate swap periodic cost (income), net 2,5

18 0.10 % 12 0.06 %

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Interest rate swap periodic cost is measured as a percent of average mortgage borrowings outstanding for the period.

The principal elements impacting our economic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio outstanding during the period, (ii) the average interest rate (actual and implied) on our mortgage borrowings and (iii) the average net interest rate paid/received on our interest rate swaps.

The following table includes a summary of the estimated impact of these elements on our economic interest expense for the three and nine months ended September 30, 2021 compared to the prior year period (in millions):

The principal elements impacting our economic interest expense are (i) the size of our average mortgage borrowings and interest rate swap portfolio outstanding during the period, (ii) the average interest rate on our mortgage borrowings and (iii) the average net interest rate paid/received on our interest rate swaps.

The following table includes a summary of the estimated impact of these elements on our economic interest expense for the three months ended March 31, 2022 compared to the prior year period (in millions):

Impact of Changes in the Principal Elements of Economic Interest Expense

Periods ended September 30, 2021 vs.

September 30, 2020

Due to Change in Average

Total Increase / (Decrease) Borrowing / Swap Balance Borrowing / Swap Rate

Three months ended:

Repurchase agreements and other debt interest expense $ (48) $ (15) $ (33)

TBA dollar roll income - implied interest benefit/expense 8 (4) 12

Interest rate swap periodic cost — 3 (3)

Total change in economic interest benefit/expense $ (40) $ (16) $ (24)

Three Months Ended March 31, 2022 vs.

March 31, 2021

Due to Change in Average

Nine months ended:

Total Increase / (Decrease) Borrowing / Swap Balance Borrowing / Swap Rate

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Total change in economic interest benefit/expense $ 13 $ 8 $ 5

Our average mortgage borrowings, inclusive of TBAs, decreased 14% and 12% for the three and nine months ended September 30, 2021, respectively, compared to the prior year period, consistent with the decline in our average investment portfolio.

The decline in the average interest rate (actual and implied) on our mortgage borrowings for the three and nine months ended September 30, 2021 of 19 basis points and 92 basis points, respectively, was due to the combination of lower short-term interest rates and favorable technical supply and demand factors in the repo and TBA dollar roll markets.

The change in our interest rate swap periodic cost for the three and nine months ended September 30, 2021 was a function of our average swap balance outstanding and the average fixed rate paid and floating rate received on our interest rate swaps as compared to the prior year periods.

The following is a summary of our average interest rate swaps outstanding and the related average swap pay and receive rates for each of the periods presented (dollars in millions).

Our average mortgage borrowings, inclusive of TBAs, decreased 19% for the three months ended March 31, 2022, compared to the prior year period, due to a decline in stockholders' equity and smaller asset base.

The average interest rate on our mortgage borrowings for the three months ended March 31, 2022 was largely unchanged from the prior year period, increasing 3 basis points.

The increase in our interest rate swap periodic cost for the three months ended March 31, 2022 was a function of our average swap balance outstanding and the average fixed rate paid / floating rate received.

The following is a summary of our average interest rate swaps outstanding and the related average swap pay and receive rates for the three months ended March 31, 2022 and 2021 (dollars in millions).

Amounts exclude forward starting swaps not yet in effect.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Average Ratio of Interest Rate Swaps (Excluding Forward Starting Swaps) to Mortgage Borrowings Outstanding 2022 2021

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$ 46,570 $ 54,602

Average net TBA portfolio outstanding - at cost

$ 30,312 $ 27,785 $ 30,132 $ 17,017

Average net TBA dollar roll position outstanding - at cost $ 23,605 $ 32,022

Average mortgage borrowings outstanding

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Ratio of average interest rate swaps to mortgage borrowings outstanding

65 % 46 % 59 % 57 %

Average interest rate swap pay-fixed rate (excluding forward starting swaps) 0.23 % 0.16 %

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0.14 % 0.11 %

For the three and nine months ended September 30, 2021, we had a forward starting swap average balance of $9 million and $0.1 billion, respectively, and, for the three and nine months ended September 30, 2020, an average balance of $0.7 billion and $1.0 billion, respectively.

For the three months ended March 31, 2022 and 2021, we had an average forward starting swap balance of $0.1 billion and $0.3 billion, respectively.

Forward starting interest rate swaps do not impact our economic interest expense and aggregate cost of funds until they commence accruing net interest settlements on their forward start dates.

Including forward starting swaps, our average ratio of interest rate swaps outstanding to our average mortgage borrowings for the three and nine months ended September 30, 2021 was 65% and 59%, respectively, and 47% and 58% for the three and nine months ended September 30, 2020, respectively.

Including forward starting swaps, our average ratio of interest rate swaps outstanding to our average mortgage borrowings for the three months ended March 31, 2022 and 2021 was 75% and 53%, respectively.

Net Interest Spread

The following table presents a summary of our net interest spread (including the impact of TBA dollar roll income, interest rate swaps and excluding "catch-up" premium amortization) for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended

September 30,

Three Months Ended

Investment and TBA Securities - Net Interest Spread 2022 2021

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Net Spread and Dollar Roll Income

The following table presents a summary of our net spread and dollar roll income, excluding estimated "catch-up" premium amortization, per diluted common share (a non-GAAP financial measure) and a reconciliation to our net interest income (the most comparable GAAP financial measure) for the three and nine months ended September 30, 2021 and 2020 (dollars in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2021 2020 2021 2020

The following table presents a summary of our net spread and dollar roll income, excluding estimated "catch-up" premium amortization, per diluted common share (a non-GAAP financial measure) and a reconciliation to our net interest income (the most comparable GAAP financial measure) for the three months ended March 31, 2022 and 2021 (dollars in millions):

Three Months Ended

Net interest income (GAAP measure) $ 448 $ 528

TBA dollar roll income, net 1

175 155 491 249

Interest rate swap periodic cost, net 1

(13) (13) (44) (41)

Other interest and dividend income 1

Interest rate swap periodic cost (income), net 1

Adjusted net interest and dollar roll income 582 670

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Gain (Loss) on Investment Securities, Net

The following table is a summary of our net gain (loss) on investment securities for the three and nine months ended September 30, 2021 and 2020 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

The following table is a summary of our net gain (loss) on investment securities for the three months ended March 31, 2022 and 2021 (in millions):

Three Months Ended

Gain (Loss) on Investment Securities, Net 1

2021 2020 2021 2020

Gain (loss) on sale of investment securities, net $ (5) $ 346 $ 7 $ 993

Unrealized gain (loss) on investment securities measured at fair value through net income, net 2

Loss on sale of investment securities, net $ (342) $ (13)

Unrealized loss on investment securities measured at fair value through net income, net 2

(2,532) (955)

Unrealized gain (loss) on investment securities measured at fair value through other comprehensive income, net 6 70 (308) 737

Total gain (loss) on investment securities, net $ (140) $ 51 $ (1,425) $ 2,241

Unrealized loss on investment securities measured at fair value through other comprehensive income, net (491) (237)

Total loss on investment securities, net $ (3,365) $ (1,205)

________________________________

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Gain (Loss) on Derivative Instruments and Other Securities, Net

The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three and nine months ended September 30, 2021 and 2020 (in millions):

Three Months Ended September 30,

Nine Months Ended

September 30,

2021 2020 2021 2020

The following table is a summary of our gain (loss) on derivative instruments and other securities, net for the three months ended March 31, 2022 and 2021 (in millions):

Three Months Ended

TBA securities, dollar roll income $ 152 $ 154

TBA securities, mark-to-market gain/(loss) (145) 128 (991) 947

Forward settling non-Agency, mark-to-market gain/(loss) 3 — 3 —

TBA securities, mark-to-market loss (1,386) (1,080)

Interest rate swaps, periodic cost (18) (12)

Interest rate swaps, mark-to-market gain/(loss) 70 153 825 (2,993)

Interest rate swaps, mark-to-market gain 1,975 1,136

Payer swaptions 363 387

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Estimated Taxable Income (Loss)

For the three months ended September 30, 2021 and 2020, we had estimated taxable income attributed to common stockholders of $45 million and $508 million, respectively, or $0.09 and $0.92 per diluted common share, respectively.

For the nine months ended September 30, 2021 and 2020, we had estimated taxable income (loss) available (attributable) to common stockholders of $(277) million and $615 million, respectively, or $(0.52) and $1.11 per diluted common share, respectively.

For the three months ended March 31, 2022 and 2021, we had estimated taxable loss attributable to common stockholders of $(43) million and $(164) million, respectively, or $(0.08) and $(0.31) per diluted common share, respectively.

Income determined under GAAP differs from income determined under U.S.

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Furthermore, our estimated taxable income is subject to potential adjustments up to the time of filing our appropriate tax returns, which occurs after the end of our fiscal year.

The following is a reconciliation of our GAAP net income to our estimated taxable income for the three and nine months ended September 30, 2021 and 2020 (dollars in millions, except per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2021 2020 2021 2020

The following is a

reconciliation of our GAAP net income to our estimated taxable income (loss) for the three months ended March 31, 2022 and 2021 (dollars in millions, except per share amounts):

Three Months Ended March 31,

Net income/(loss) $ (651) $ 975

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Total book to tax differences 608 (1,139)

REIT taxable income (loss) 45 533 (277) 686

REIT taxable loss (43) (164)

REIT taxable income attributed to preferred stock — —

REIT taxable income (loss), attributed to common stock $ 45 $ 508 $ (277) $ 615

REIT taxable loss attributed to common stock $ (43) $ (164)

Weighted average common shares outstanding - basic 524.3 533.7

Weighted average common shares outstanding - diluted 524.3 533.7

REIT taxable income (loss) per common share - basic $ 0.09 $ 0.92 $ (0.52) $ 1.11

REIT taxable income (loss) per common share - diluted $ 0.09 $ 0.92 $ (0.52) $ 1.11

REIT taxable loss per common share - basic $ (0.08) $ (0.31)

REIT taxable loss per common share - diluted $ (0.08) $ (0.31)

Beginning net capital loss carryforward $ — $ —

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We may also conduct asset sales, change our asset or funding mix, issue equity or undertake other capital enhancing actions to maintain adequate levels of liquidity and capital resources.

We believe that we have sufficient liquidity and capital resources available to meet our obligations and execute our business strategy.

There are various risks and uncertainties that can impact our liquidity, such as those described in Item 1A.

Risk Factors of our most recent Annual Report on Form 10-K and Item 3.

Quantitative and Qualitative Disclosures of Market Risks in this Form 10-Q.

In assessing our liquidity, we consider a number of factors, including our current leverage, collateral levels, access to capital markets, overall market conditions, and the sensitivity of our tangible net book value over a range of scenarios.

However, these and other factors impacting our liquidity are subject to numerous risks and uncertainties, including as described in the Quantitative and Qualitative Disclosures of Market Risks and Risk Factors sections of this Form 10-Q.

We believe that we have sufficient liquidity and capital resources available to meet our obligations and execute our business strategy.

Leverage and Financing Sources

Our leverage will vary depending on market conditions and our assessment of relative risks and returns, but we generally expect our leverage to be between six and twelve times the amount of our tangible stockholders' equity, measured as the sum of our total mortgage borrowings and net payable / (receivable) for unsettled investment securities, divided by the sum of our total stockholders' equity adjusted to exclude goodwill.

Our tangible net book value "at risk" leverage ratio was 7.5x and 8.5x as of September 30, 2021 and December 31, 2020, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of September 30, 2021 and December 31, 2020 (dollars in millions).

Our tangible net book value "at risk" leverage ratio was 7.5x and 7.7x as of March 31, 2022 and December 31, 2021, respectively.

The following table includes a summary of our mortgage borrowings outstanding as of March 31, 2022 and December 31, 2021 (dollars in millions).

For additional details of our mortgage borrowings refer to Notes 2, 4 and 5 to our Consolidated Financial Statements in this Form 10-Q.

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Mortgage Borrowings Amount % Amount %

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________________________________

As of September 30, 2021 and December 31, 2020, 42% and 46%, respectively, of our repurchase agreements were funded through the Fixed Income Clearing Corporation's GCF Repo service.

As of March 31, 2022 and December 31, 2021, 41% and 42%, respectively, of our repurchase agreements were funded through the Fixed Income Clearing Corporation's GCF Repo service.

Amounts exclude U.S.

Treasury repurchase agreements.

Our primary financing sources are collateralized borrowings structured as repurchase agreements.

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Our agreements generally provide that in the event of a margin call, collateral must be posted on the same business day, subject to notice requirements.

As of September 30, 2021, we had met all our margin requirements.

As of March 31, 2022, we had met all our margin requirements.

The value of Agency RMBS collateral is impacted by market factors and is reduced by monthly principal pay-downs on the underlying mortgage pools.

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We attempt to manage the liquidity risk associated with principal pay-downs by monitoring conditions impacting prepayment rates and through asset selection.

As of September 30, 2021, our portfolio largely consisted of lower coupon 30 and 15-year TBA securities, which are not subject to monthly principal pay-downs, and higher coupon holdings concentrated in high quality, specified Agency RMBS pools, which have a lower risk of prepayment than similar coupon generic Agency RMBS.

Collateral requirements under our derivative agreements are subject to our counterparties' assessment of their maximum risk of loss associated with the derivative instrument measured over a certain period of time, referred to as the initial or minimum margin requirement.

As of March 31, 2022, 31% our portfolio consisted of TBA securities, which are not subject to monthly principal pay-downs.

The remainder of our portfolio, primarily consisted of Agency RMBS, which had an average one-year CPR forecast of 7%.

Collateral requirements under our derivative agreements are subject to our counterparties' assessment of their maximum risk of loss associated with the derivative instrument, referred to as the initial or minimum margin requirement, and may be adjusted based on changes in market volatility and other factors.

We are also subject to daily variation margin requirements based on changes in the value of the derivative instrument and/or collateral pledged.

Daily variation margin requirements also entitle us to receive collateral if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement.

The collateral requirements under our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC and, if applicable, by our third-party brokerage agreements, which may establish margin levels in excess of the MBSD.

The collateral requirements under our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC and, if applicable, by third-party brokerage agreements, which may establish margin levels in excess of the MBSD.

Collateral levels for interest rate derivative agreements are typically governed by the central clearing exchange and the associated futures commission merchants ("FCMs"), which may establish margin levels in excess of the clearing exchange.

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Haircut levels and minimum margin requirements imposed by our counterparties reduce the amount of our unencumbered assets and limit the amount we can borrow against our investment securities.

During the nine months ended September 30, 2021, haircuts remained stable, and, as of September 30, 2021, the weighted average haircut on our repurchase agreements was approximately 4.0% of the value of our collateral, compared to 4.6% as of December 31, 2020.

To mitigate the risk of future margins calls, we seek to maintain excess liquidity by holding unencumbered liquid assets that can be used to satisfy collateral requirements, collateralize additional borrowings or sold for cash.

As of September 30, 2021, our unencumbered assets totaled 66% of our tangible net equity, compared to 60% as of December 31, 2020.

During the three months ended March 31, 2022, haircuts remained stable.

As of March 31, 2022, the weighted average haircut on our repurchase agreements was approximately 4.0% of the value of our collateral, compared to 3.8% as of December 31, December 31, 2021.

To mitigate the risk of margins calls, we seek to maintain excess liquidity by holding unencumbered liquid assets that can be used to satisfy collateral requirements, collateralize additional borrowings or sold for cash.

As of March 31, 2022, our unencumbered assets totaled 59% of our tangible equity, compared to 67% as of December 31, 2021.

The majority of our liquidity is held at AGNC, but we also maintain capital and excess liquidity at Bethesda Securities to meet regulatory standards, satisfy counterparty and clearing organization expectations, and for risk management purposes.

As of September 30, 2021, we had cash and unencumbered Agency RMBS and U.S.

Treasury securities totaling $5.2 billion, or 51% of our tangible equity, which excludes unencumbered CRT securities, non-Agency securities and assets held at Bethesda Securities, compared to $5.4 billion and 51%, respectively, as of December 31, 2020.

As of March 31, 2022, we had cash and unencumbered Agency RMBS and U.S.

Treasury securities totaling $3.5 billion, or 42% of our tangible equity, which excludes unencumbered CRT and non-Agency securities and assets held at Bethesda Securities, compared to $4.9 billion and 50%, respectively, as of December 31, 2021.

Counterparty Risk

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We also diversify our funding across multiple counterparties and by region.

As of September 30, 2021, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our repurchase agreement counterparties, excluding the FICC, was less than 2% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing less than 5% of our tangible stockholders' equity.

As of September 30, 2021, approximately 7% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of September 30, 2021, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.

As of March 31, 2022, our maximum amount at risk (or the excess/shortfall of the value of collateral pledged/received over our repurchase agreement liabilities/reverse repurchase agreement receivables) with any of our repurchase agreement counterparties, excluding the FICC, was less than 2% of our tangible stockholders' equity, with our top five repo counterparties, excluding the FICC, representing approximately 5% of our tangible stockholders' equity.

As of March 31, 2022, approximately 8% of our tangible stockholder's equity was at risk with the FICC.

Excluding central clearing exchanges, as of March 31, 2022, our amount at risk with any counterparty to our derivative agreements was less than 1% of our stockholders' equity.

Agency RMBS securities are among the most liquid fixed income securities, and the TBA market is the second most liquid market (after the U.S.

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The vitality of these markets enables us to sell assets under most market conditions to generate liquidity through direct sales or delivery into TBA contracts, subject to "good delivery" provisions promulgated by the Securities Industry and Financial Markets Association ("SIFMA").

Under certain market conditions, however, we may be unable to realize the full "pay-up" value of our specified pool securities, or premium relative to generic Agency RMBS.

We attempt to manage this risk by maintaining a minimum level of securities that trade at or near TBA values that in our estimation enhances our portfolio liquidity across a wide range of market conditions.

Under certain market conditions, however, we may be unable to realize the full "pay-up" value of our specified pool securities, which is the incremental value in excess of equivalent coupon generic Agency RMBS.

We attempt to manage this risk by maintaining at least a minimum level of securities that trade at or near TBA values that in our estimation enhances our portfolio liquidity across a wide range of market conditions.

Capital Markets

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Furthermore, when the trading price of our common stock is less than our estimate of our current tangible net book value per common share, among other conditions, we may repurchase shares of our common stock.

Please refer to Note 9 and 10 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions and stock repurchase plan.

Please refer to Note 9 of our Consolidated Financial Statements in this Form 10-Q for further details regarding our recent equity capital transactions, if any.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2021, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Additionally, as of September 30, 2021, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.

As of March 31, 2022, we did not maintain relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Additionally, as of March 31, 2022, we had not guaranteed obligations of unconsolidated entities or entered into a commitment or intent to provide funding to such entities.

FORWARD-LOOKING STATEMENTS

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Factors that could cause actual results to vary from our forward-looking statements include, but are not limited to, the following:

• the impact of the COVID-19 pandemic and of measures taken in response to the COVID-19 pandemic by various governmental authorities, businesses and other third parties;

• actions by the federal, state, or local governments to stabilize the economy, the housing sector or financial markets;

• changes in U.S.

monetary policy or interest rates, including Fed purchases of Agency RMBS;

monetary policy or interest rates, including actions taken by the Fed to normalize monetary policy, to terminate its purchases of Agency RMBS and to reduce the size of its U.S.

Treasury and Agency RMBS bond portfolio;

• fluctuations in the yield curve;

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• conditions in the market for Agency RMBS and other mortgage securities;

• the impact of the COVID-19 pandemic and of measures taken in response to the COVID-19 pandemic by various governmental authorities, businesses and other third parties;

• actions by the federal, state, or local governments to stabilize the economy, the housing sector or financial markets;

• legislative or regulatory changes that affect our status as a REIT, our exemption from the Investment Company Act of 1940 or the mortgage markets in which we participate;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis